Ruling Disarms Regulators

May 02, 1986|By Maurice Possley and Bill Barnhart.

A U.S. Circuit Court of Appeals panel in Chicago has spiked one of the most powerful weapons national bank regulators have been using against directors of troubled banks: assessments of personal liability.

In a decision concerning First National Bank of Mt. Auburn, Ill., the nine-judge panel said the U.S. Comptroller of the Currency, which regulates nationally chartered banks, exceeded its powers in imposing $1.8 million in fines against five present and former directors of the bank without first filing suit against the directors in U.S. District Court.

A spokeswoman for the comptroller said the office hasn`t reviewed the ruling, issued late Wednesday, but may appeal it to the U.S. Supreme Court.

``Obviously, we don`t agree with it,`` she said.

The comptroller had charged that between 1979 and 1982 the directors, one of whom is now dead, had repeatedly permitted the bank to make loans that exceeded its legal lending limit. At that time, banks could not lend any individual borrower an amount more than 10 percent of the bank`s capital.

After several examinations and warnings, the comptroller administratively imposed $1.08 million in fines against four present and former directors and a separate $744,053 fine against William G. Butcher, president.

In overturning the fines, the appeals court, with one dissent, said the comptroller`s office too liberally interpreted federal powers to correct problems at national banks. Assessing personal liability against directors

The court said the comptroller must return to Congress to get this power. The spokeswoman for the comptroller said the power to assess personal liability against national bank directors has been part of its arsenal of enforcement powers for some time. She said appeals courts around the country have disagreed on the validity of the power, indicating an appeal to the Supreme Court may be in order.

The comptroller`s other two options are to sue the directors in district court, a time-consuming and costly process, or ask Congress for broader powers.

Butcher said Thursday he was pleased by the ruling. Evidence in the case indicated that Butcher, who joined the board in January, 1982, was unaware of the extent of lending to the borrowers involved in the case and had not been told of earlier comptroller`s warnings.

The other directors assessed were Sam W. Taylor and BernieceLarimore. The former directors were Orville Bottrell and the late Albert P. Mulberry.

In its defense, the comptroller cited a Senate report in 1966 that said the agency must have the ability to act quickly and effectively against the conduct of bank officers and directors that imperils a bank. The report said existing remedies weren`t adequate.

The court said the comptroller`s powers properly include cease and desist orders, the right to remove officers and directors, and the power to close the bank.